Statistical Tests Black swans or dragon-kings? A simple test for deviations from the power law★
1 Hugo Steinhaus Center for Stochastic Methods, Wrocław University of Technology, Poland
2 Institute of Organization and Management, Wrocław University of Technology, Poland
Revised: 9 March 2012
Published online: 1 May 2012
We develop a simple test for deviations from power law tails. Actually, from the tails of any distribution. We use this test – which is based on the asymptotic properties of the empirical distribution function – to answer the question whether great natural disasters, financial crashes or electricity price spikes should be classified as dragon-kings or ‘only’ as black swans.
Matlab codes for testing for deviations from power law (ci_powertails.m) or Weibull tails (ci_weibulltails.m) are available for download from the HSC Software/IDEAS repository (http://ideas.repec.org/s/wuu/hscode.html).
© EDP Sciences, Springer-Verlag, 2012